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When you start Forex trading, several needed facts will provide a better starting point even though traders’ experience is not good enough. There are plenty of guides that try to inform you about the main mechanics, strategies, or short tactics for better movements but considering each of them is getting very difficult. This is why there are central concepts that must be known before you decide to start trading with FX.
When you decide to join this massive club of FX traders, you need to know how to make useful market searches and then consider the relevant data to your trading strategies.
It is also essential to know which factors have an impact on daily trends and how you can find the balance between risk and time management. Even though the diversity of FX services is good, it can be very problematic in the early stages of trading. Because of this background, in this article, we will introduce you to several central concepts where three are the most important to be considered by every kind of experienced trader in the FX industry.
Forex Pairs – Everything You Should Know About Them
As we found out, Forex trading is all about exchanging different currencies. So you are trading with pairs of currencies whose selection is up to you. There are many guides and expert advice which give you a clear picture of what currency pairs are the most profitable for the specific market.
This amount of probable profit mostly outlines how rare and slight are fluctuations in their prices. This is very important at the early stages of trading because if you follow this link, you will clearly see what you need to know to trade profitably in the beginning.
Because some currencies are widely used and some of them not, in Forex trading we have different types of currency pairs. Start with the majors. These pairs include currencies that are most widely used worldwide. So if you decide to use such a type of pair, you will trade with USD. Because of frequent use, the liquidity in major pairs is high which automatically means tighter spreads. For example, the major currency pair can be USD vs EUR or USD vs GBP.
In Forex you can also trade with minor pairs which are kind of the opposite of majors. These are the pairs that do not include USD. accordingly, they are less popular and are featured with less liquidity. On the other hand, the spread in minor pairs is wider compared to the majors. Minor pairs are EUR vs GBP or JPY vs EUR.
The third type of pair is called exotics. This simply means currency pairs that are very rarely traded. Because they seem a little bit unusual for mainstream financial circles, they are considered exotic. An example of such types of pairs can be TRY vs EUR or SGD with CAD.
Forex – Same As Zero Sum Game?
What is a zero-sum game? This is the concept that is the most common feature of the games and processes. Simply, this is a situation where two sides are involved, and the winning of one side is caused by the loss of the second side. So in this game, we have a winner and a person who lost it. Trading is the same process. There will always be the one who will win with the purchasing or selling and another one who loses because of this exchange.
The same happens in Forex trading. This type of trading is about exchanging currencies. When trader A receives the profit, this means that trader B lost the same amount of money. Some of the experts think that because this market is featured with commissions and different spreads, it can be called a negative sum game, but still, the concept’s relevance to Forex trading does not change.
The Nature Of Forex Market
If we want to outline what the Forex transactional market looks like, the pyramid is the best way for this. We can divide the whole structure into four main layers which start with individual investors. They are actual sellers and buyers of foreign currency. On the next layer, we can put commercial banks which are also the biggest circle of the Forex exchange market. Their role is huge in determining the market trends as well as part of the demand and fluctuations. These banks purchase currencies from single brokers, who are the third layer of the pyramid, and then sell them to buyers.
On the next level of the pyramid, we can consider the central bank which always will be an important ring of any type of financial market. It is the player which has the biggest impact on the FX market and its features. It always plays as a regulator which saves the market from aggressive fluctuations.
To conclude, the main nature of the FX market is aimed at highly accessible trading for banks. The market avoids speculators itself which makes the trading possible with low volatility and high leverage. This is why more and more of us are interested in starting FX trading.
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